The IPO market peaked in the year 2008 raising $11.7 billion but has languished since then.

From 2009 until 2012, Saudi Arabia led the table in the Gulf on Initial Public Offerings with 32, raising $3.93 billion.

UAE came in second with three in 2011 and two in 2012, though in case of the latter, both — NMC Group and Al Noor Hospitals — were listed in London. In 2011, in the UAE, Eshraq Properties, National takaful Company (Watania) and Insurance House raised $229 million, $24 million and $19 million respectively.

Al Habtoor shelved its IPO plans in late December 2012 citing lack of opportunities to invest its proceeds and may consider in 2014 when economic situation improves.

In the UAE specifically, there are two things that are impacting the IPO issuance. One is favourable market conditions, which was lacking. Also, current regulations do not help either.

“We are not yet in a situation where valuations are attracting people to sell their companies,” said Fadi Al Said, head of equities at ING Investment Management, Dubai.

“For the IPO market to be active you need two things: you need demand, that is, markets in good conditions when people believe that they can make profits. On the other hand, market valuations that are fair, not expensive.”


Another lacunae

There is another lacunae in terms of IPO legislation, said Said. Saudi Arabia overcame this situation by book-building legislation and a lot of successful family businesses coming into the market.

“What we are seeing right now in the UAE, the book-building is not really put in place. The regulation of coming at par — we are paying the price till now for the stocks that came at Dh1.” According to Vijay Harpalani, assistant fund manager at Al Mal Capital, loss of confidence, relatively lower institutional participation, and lack of diversification — most listed companies are in real estate and banking sectors — are key reasons why IPO markets failed to take off.

“With the expected changes in the local regulations that allow companies to go public with less than 49 per cent, we expect to see a renewed interest in launching IPOs,” he says.

IPO or primary market can thrive only on the back of strong secondary market, adds Raghu Mandagolathur, senior vice president — research at Kuwait Financial Centre. “Hence, when the bull phase resumes, you will see interest coming back in the IPO market. This is a global trend and hence applies here as well.”